(NerdWallet) – No one knows for sure when — or if — the student loan forgiveness is coming.
Going forward, you should plan to resume payments on your federal student loans in January 2023, especially if you were counting on debt cancellation to wipe out your balance entirely.
Why? A Texas federal judge has struck down the Biden administration’s plan to write off up to $20,000 per borrower. The plan is also subject to an injunction arising from another lawsuit, and several other lawsuits are pending in court. Any of them could also derail debt relief.
As the Department for Education seeks to overturn court rulings, there is no guarantee that these roadblocks will be lifted before January – or ever.
Unless the president orders a further extension of abstention, the countdown begins again in January. Loans will start earning interest again, and missed payments will eventually leave a big dent in your credit history.
Will student loan forbearance be extended?
We do not know. The White House has not yet committed to suspending payments beyond the January 1, 2023 deadline. It is possible, however, as the forbearance has been extended several times since 2020. In the appeal of administration, Department of Education Undersecretary James Kvaal is calling for an extension of the abstention as a potential consequence of upholding the Texas judge’s ruling.
Student borrowing activists are pressuring the Biden administration to immediately extend forbearance.
“The Biden administration cannot resume payments on January 1,” Student Borrower Protection Center deputy executive director and counsel Persis Yu said in a press release. “He must use all his tools to fight to ensure borrowers receive the debt relief they need.”
But Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents companies that service federal student loan accounts, says student loan servicers are moving forward as if payments start again in January.
Are the prosecutions likely to succeed?
We do not know. It’s unclear if any of the lawsuits to prevent student loan forgiveness will come to an end.
However, the two most difficult trials led to a complete shutdown of the program. In one case, a judge ruled the plan illegal. The Biden administration quickly appealed the decision, but getting a final answer while the case is in court will likely take months. In another, an appeals court left an injunction in place preventing any debt relief while the case progresses through the system.
Borrowers should make plans based on the current situation, Buchanan says. That is, the cancellation of the student loan is blocked and payments resume in January.
“You have these big programs and big decisions using authority that hasn’t been tested in court,” Buchanan says. “It can cause a lot of delays or it could mean it doesn’t happen.”
It stings for those watching from the sidelines.
“It makes me incredibly frustrated,” says Dave Christensen, a borrower from Wisconsin who has paid off his loans during the pandemic and is waiting for a refund that he fears he will have to pay back with interest. “We tend to drag things out for so long trying to achieve victory for our program and our policies, we lose sight of how it actually affects people.”
Can I still request a debt cancellation?
No. For now, the Ministry of Education has closed new requests for help until the lawsuits unfold. The White House says 26 million borrowers have applied, with 16 million already processed and ready to roll.
Under current guidelines, you must apply by December 31, 2023.
Do I need to return my refunded payments?
Yes, but not all at once. If you requested a refund for payments made during the pandemic, your new payment amount in January will reflect a larger balance, which will include the refund.
If you haven’t asked for a refund, it might be best to wait for the debt cancellation lawsuit to unfold. If the cancellation still occurs and you have paid your loan balance below the cancellation amount to which you are entitled, your refund will be automatic.
If you still want to make a manual refund request, you have until the end of 2023 to do so.
What if I can’t afford to make payments?
Act now, urges Dwayne Kwaysee Wright, professor of higher education administration at George Washington University.
“It’s going to take a while,” Wright said. “Take a day, take a lunch break, maybe take an extra hour, call your lender right now and talk about January 1st.” He says borrowers should be clear about the amount of their upcoming payments and ask service agents about options that could lower their bills.
An income-based repayment plan caps your payments at a certain portion of your total income, potentially lowering your monthly bills while extending the term of the loan. Payouts can be as low as $0.
If you are already enrolled in an IDR plan, you will not have to recertify your earnings until July 2023.
If you’ve lost your job, an unemployment deferral can allow you to skip payments altogether until you start earning money again.
What about other debt relief components?
“The administration is fighting on a whole bunch of other fronts,” says Mike Pierce, executive director of the Student Borrower Protection Center. “None of these policies are directly affected by any of these losses.” These policies include:
- Changes to loan forgiveness programs that significantly streamline the process for public service borrowers, teachers whose schools have been closed, and those whose schools have defrauded or misled them.
- An income-based refund waiver that expands past payments — including partial or late payments, or time spent in certain types of forbearance or deferral — counts towards the 240 to 300 needed for forgiveness.
- A “Fresh Start” program to allow borrowers whose loans are in arrears to resume repayment in good standing, without penalties or catch-up payments.
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